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    Peer-to-peer Lending?
    Hello all. I am curious if anyone on board has invested funds in a peer-to-peer lending company. An example is Lending Club, but there are others. The big upshot I see with these is the interest rates. In an era of unbelievably paltry rates (well below 1%), the offerings at the peer-to-peer firms range between 6 and 28%. There is a higher risk of default, of course, but the more safe investments don't appear to be too bad.

    Anyway, I would be curious on your experiences. Also, if there is a particular company you'd recommend I park some investment cash, I'm all ears. Thanks.


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    I personally haven't done it, though I've talked with multiple other investors who have. Long story short, not worth it unless you are with a company that screens it's clients really well. Then you run into the problem that when the clients are screened well, almost none pass the requirements and you don't have enough loans to choose from in order to diversify enough.

    Keep in mind that 99% of the people you are lending to are those who simply cannot get money from anywhere else, not from banks, friends or even their family. Now if their family doesn't trust them to pay back... why do you? The average default rate was somewhere at maybe 25%. And that is pure defaults as in completely stopped payments for months. About the same percentage, 25%, were paying on time. And the roughly 50% left in the middle would pay it back but not as often or not as much as they were supposed to.


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    Really good post crimsonghost and it makes perfect sense. Tell me, how are those investors you've talked too been doing with those peer-to-peer lending? How do they screen the clients effectively and how do they assure they get their money back?


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    The risks involved are too high. The interest rates might be very enticing but note that if the deal is too good it's probably safer to give it a wide berth.

    So far I haven't had any long sad tales about investors losing their money in Peer-to-Peer lending networks but that doesn't mean they are all safe. Some of these things take time to draw people in and once you've place a lot of money in the go kaput. Trust not some of these fancy online investments.


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    Thanks for the details crimsonghost747; that is most helpful. For whatever its worth, the ones I am looking into have a default rate closer to 3-5%. That's high, of course, but no where near 25%. That and the handful of companies I'm checking out are SEC regulated.


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    Quote Originally Posted by SteakTartare View Post
    Thanks for the details crimsonghost747; that is most helpful. For whatever its worth, the ones I am looking into have a default rate closer to 3-5%. That's high, of course, but no where near 25%. That and the handful of companies I'm checking out are SEC regulated.
    And that default rate is according to who? The people who need your money to keep the service going, or people who have actually invested in the long term with these companies? I'm sure there are some companies a lot better than the ones I'm familiar with, but I'd be very careful.


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    Quote Originally Posted by Rainman View Post
    The risks involved are too high. The interest rates might be very enticing but note that if the deal is too good it's probably safer to give it a wide berth.

    So far I haven't had any long sad tales about investors losing their money in Peer-to-Peer lending networks but that doesn't mean they are all safe. Some of these things take time to draw people in and once you've place a lot of money in the go kaput. Trust not some of these fancy online investments.
    Most of those lending sites have risk scales, though. Loans are rated based on how risky they are. So you could potentially still choose all loans that are relatively safe, but offer lower interest rate returns.

    As with most investments, I think this is a type of investment that needs to be varied. Don't drop a whole lot of money into a single loan, but rather, drop small amounts into several loans. That way, if one ends up failing and not returning all the money, you're only out a little bit and the others are likely to balance it out.


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    Most of the peer to peer lending does not have high interest because the money is meant to help out a friend to get out of an emergency so charging a high interest rates will make the lending not serve its purpose.


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    Quote Originally Posted by caparica007 View Post
    Really good post crimsonghost and it makes perfect sense. Tell me, how are those investors you've talked too been doing with those peer-to-peer lending? How do they screen the clients effectively and how do they assure they get their money back?
    Most of them are more or less at +/- 0. The ones who pay back, even slower than expected, bring in nice income but the defaults just take it all away. Most of these are serious investors whom I talk about the stock market etc. and this is something they do more or less for fun. It's small money that they are investing (most of them started with a couple of hundreds or a couple of thousands) The company does some sort of a screening process themselves and rates the clients with A+, A, A-, B+ etc. to determine how likely they are to pay back. Most people refuse to take anything except A+ or A. There is actually very little information available to the investor, since the companies aren't allowed to distribute detailed financial information about their clients. (at least not where I live, could be different elsewhere)

    The company they invest through does start a law suit if the loan is not paid. But in most cases this doesn't really lead to anything since most of these people who are loaning money just have no way of paying it back.

    Out of all the companies we have talked about, the one getting the most positive results seems to be Isepankur which is an Estonian company but accepts foreign investors.


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    Quote Originally Posted by crimsonghost747 View Post
    Most of them are more or less at +/- 0. The ones who pay back, even slower than expected, bring in nice income but the defaults just take it all away. Most of these are serious investors whom I talk about the stock market etc. and this is something they do more or less for fun. It's small money that they are investing (most of them started with a couple of hundreds or a couple of thousands) The company does some sort of a screening process themselves and rates the clients with A+, A, A-, B+ etc. to determine how likely they are to pay back. Most people refuse to take anything except A+ or A. There is actually very little information available to the investor, since the companies aren't allowed to distribute detailed financial information about their clients. (at least not where I live, could be different elsewhere)

    The company they invest through does start a law suit if the loan is not paid. But in most cases this doesn't really lead to anything since most of these people who are loaning money just have no way of paying it back.

    Out of all the companies we have talked about, the one getting the most positive results seems to be Isepankur which is an Estonian company but accepts foreign investors.
    OK, so basically relatively small amounts are involved and some screening is made so the risk is reduced and the profits cover it, nicely done. I wonder why the banks can't do the same...


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